Irish Consumer Confidence Increases 19 Points Since 2013

Dublin, Monday, August 11, 2014. The Marketing Institute of Ireland and UCD

Michael Smurfit Graduate Business School have today launched their Consumer
Market Monitor for Q2 2014, which shows that consumer confidence now stands at
+8.4, an increase of over 19 points compared to the same period in 2013.
The data shows that the consumer economy is finally showing definite signs of
recovery. Consumer confidence increased steadily through 2013, rising to a record
level of +10 in Q1 2014, and this improving confidence has also begun to feed
through into consumer spending.

Mary Lambkin, Professor of Marketing, UCD Smurfit School, and one of the authors of the Monitor, said:

“Consumer spending accounts for over 60% of GNP in Ireland and is a critical factor in driving any recovery of the economy. Consumer spending is affected by the combined influences of how much money people have available to spend coupled with their confidence in spending it. Disposable incomes are still under pressure but increasing confidence coupled with greater availability of credit is at last leading to significant growth in many categories of goods and services.”

Tom Trainor, Chief Executive, The Marketing Institute, added: “The positive shift in consumer confidence points to a potential turnaround in the Irish economy and marks an important psychological milestone as people are feeling more comfortable to spend again. This will hopefully lead to a virtuous cycle of spending as businesses feel more confident to expand or hire more staff, which in turn could result in another boost in consumer spending. While there are a number of serious hurdles to overcome, such as the impending budget, the signs are positive, representing a great opportunity for the Irish marketing profession to capitalise on.”

The Consumer Market Monitor relies on a model of consumer behaviour that sees economic variables such as income levels, taxes, interest rates and exchange rates influencing consumer confidence which in turn influences consumer behaviour including spending, saving and borrowing. The Monitor uses quarterly data collected
from sources including the Central Statistics Office (CSO), the Central Bank, the
European Commission, and various other secondary sources.

Key findings from CMM Q2 2014 include:

Spike in Consumer Confidence Compared to Q2 2013
Consumer confidence reached a seven year high of +5 in December 2013, attributed to
Ireland’s exit from the bailout programme and an easing of fears about the austerity
measures. This positive momentum continued into 2014. Confidence rose to +10 in Q1, the highest level in seven years, and significantly higher than our neighbouring countries.
Confidence levelled back a bit in Q2 to +8.4, but is still in very positive territory and
represents an increase of nineteen points since Q2 2013.Boost In Consumer Spending Evident Through Car And Property Sales

This improving confidence has also begun to feed through into consumer spending. There
has been a major turnaround in sales of new cars this year, with 62,280 units sold in the
first six months, a 26% increase on the 49,503 sold in the same period last year. Second hand car sales are also strong, estimated at 900,000 transactions for this year compared to 850,000 last year.

There is also much greater activity in the property sector, with 28,500 house sales in 2013, an increase of 36% on 2012. This upward trend is continuing in 2014, with 6,100 sales transactions in Q1, up by 28%, and similar momentum in Q2. This is being assisted by an increase in the number of properties coming on the market, as well as by the wider availability of finance. More than 15,000 properties came on the market in Q2 2014 (6,000 in Dublin), the largest number since 2008. There were 2,943 mortgages issued for house purchase in Q1 2014, up 73% on the 1,698 issued in 2013.

The Central Bank is currently forecasting a modest increase in consumer spending, up
1.1% for 2014 and 1.3% for 2015. This may well prove pessimistic, however, as recent trends suggest continuing improvement in employment and considerable buoyancy in
consumer confidence and spending. It may well be these estimates are actually exceeded; IBEC are forecasting growth of 1.9% in consumer spending this year and 2.9% in 2015.

The Economic and Social Research Institute (ESRI) has forecast growth in GNP in 2014 of 3.4 per cent and growth in GNP of 3.7 per cent in 2015. The ESRI has also predicted that the consumption component of domestic demand will rise by 2% and the headline rate in
unemployment to fall to 9.8 per cent in 2015.

Buoyancy In Retail Sales
Retail sales volume increased by a very slight 0.8% in 2013, but this represented a turning point in the economic cycle. The retail sales volume index at the beginning of
2014 was back to where it was in 2005, which is not a bad level, although it is down 16% from the 2007 peak.
Retail sales have shown more buoyancy this year; sales volume increased by 2.8%
in Q1, year-on-year, and accelerated in Q2 with volume sales up 4% year-on-year. Several retail categories have shown substantial growth including home furnishings
(up 21%), the motor trade (up 12.4%), and clothing and footwear (up 9.1%)

Essential products including food and fuel experienced strong growth in Q2 2014,
but so also did clothing and footwear, and household equipment:

Food sales up 2.7% in volume and up 1.8% in value;

Non-specialised stores (supermarkets) up 3.1% in volume and 2.2% in value;

Fuel up 5.3% in volume and 3.4% in value;

Clothing, footwear & textiles up 9.1% in volume and 3.7% in value;

Household Equipment up 9.1% in volume and 3.9% in value;

Department stores up 5.5% in volume and 2.1% in value;
A few retail categories continued to experience decline in Q2, continuing trends from previous quarters:

Books, newspapers, stationery down -5.1% in volume and -3.2% in value;

Pharmaceuticals and cosmetics down -1.5% in volume and -3.3% in value;

Bar sales down -1.3% in volume but up 1.3% in value. All in all, the Irish consumer economy is now looking significantly healthier than it has
done since the beginning of the financial crisis, and is showing a positive momentum that looks set to drive further growth across most categories of spending for the rest of this year and onwards.